Your Money

Under 30 and looking for a good property purchase

I am in the market for my first home but I am hearing all of this negativity about housing and that there is a bubble that will burst.

Also I am looking at the interest rate outlook and that worries me a bit too – I have friends who took up the first homebuyers’ grant and they are under a bit of stress making their payments.

Should I wait? I am 27 years of age and earn around $100K a year and I am engaged. My wife-to-be earns around $75K.

Your combined income is solid for people of your age. Your friends are in mortgage stress because they paid too much and borrowed too much in a fast-rising interest rate environment. They were unlucky as the Reserve Bank had cut rates aggressively to offset the effects of the GFC and then they raised them more quickly than most would have expected as we dodged the recession bullet.

Everyone who contemplates borrowing should factor in at least a two per cent rise in rates and work out how their life will be affected. Use the home repayments tables on banking websites to see how you will be affected if rates rise. This should help you work out how much you should borrow.

In a perfect world, your repayments should not be more than a third of your income. You can go higher for a great house but it could cause some stress or you might have to get a better job or a second one to make your money life easy.

I recommend going to a couple of banks, at least, and a few mortgage brokers to get a consistent idea of what you can borrow and at what interest rates. There are enormous differences out there. Also read up on everything you can to become a home buying and home loan-repaying expert. Work out the areas where you want to buy and use groups like Residex to get the average price you should pay in certain suburbs and even streets where you might want to buy. Get a good idea of what is fair value and then aim to pay less.

The housing market is soft and that means you could strike a bargain. If you do your buying with a friend or family member with some knowledge about property, it would be good but also pay for some experts, such as builders, to give you an idea on costs for repairs and renovations.

Remember, you might borrow $400,000 for a place but you could need to borrow another $75,000 to make the place look great. This should be factored into your borrowings.

Also talk about all of these financial things with your partner so you both go into this big deal with your eyes wide open. Stress can come from a partner who lives in fairy, dairy land and it means there’s no understanding of what buying a property could mean to your lifestyle and spending.

Finally, I don’t worry about a housing bubble because we don’t have an oversupply of housing and nearly all economists say there’s little chance of a worldwide recession that could create 10 per cent unemployment here in Australia. Of course, it could happen but provided you retain your jobs, you could actually be better off as interest rates would tumble! However, let’s not go there.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.